Even though the letter was not addressed to me, or the NFLA, I feel compelled to respond to statements made in Joe’s letter to Blake and the NOA on April 9.
Joe stated that he believed McDonald’s has stayed true to the 5 key principles Chris outlined at the beginning of this crisis. I have to disagree with that statement with regard to key principle #2. Spero was specifically asked on the NFLA Economics call “if we could at some point move from talking about liquidity to talking about profits, equity and shared loss”. His response was that he was not going to move off of the issue of liquidity, which clearly demonstrates an unwillingness to “think and act with a long-term mindset”. Only focusing on liquidity is by definition the opposite of a long-term mindset.
Joe’s second major point was that McDonald’s has provided unprecedented levels of financial support to U.S. owner operators. I’ll quote Spero with regard to this point: “we will consider any issue as long as we do so from the standpoint of facts.” The fact is that McDonald’s has not provided any substantive financial support to U.S. owner operators. The fact is that McDonald’s will be paid back 100% for every single penny of their rent, service fees, franchise fees and any other item that is deferred. They will not be out a single cent and have not contributed any money to financially support owners in this unprecedented time of crisis.
Joe stated that “No other major franchisor has done more than McDonald’s to support its franchisees.” That’s just not factual. McDonald’s has only deferred obligations, what they have committed to so far has not cost them a single dollar. The fact is that in some situations, such as Wal-Mart, where the landlord has abated rent, McDonald’s has decided to still charge their portion of the rent to the owner operator. The fact that a landlord would do more for the long-term financial viability of an owner operator than our franchisor is an embarrassment.
To specifically respond to what other franchisors have done: Subway forgave half its royalties and abated their 4.5% advertising payment for a month. Dunkin’ eased royalty and advertising fee payments. Others have done the same as McDonald’s by offering deferrals, so to say McDonald’s has done more to support its franchisees is not factual.
Joe said that the NFLA Economic Franchisee Relief Plan fails to recognize that the company has finite resources. There is no doubt that the original plan that was submitted was aggressive, which is appropriate given the history of inequity in shared risk and the severity of this crisis. However, McDonald’s decision, after this crisis started, to still pay shareholder dividends as well as their overly aggressive stock repurchase program has put them in their current liquidity issue. McDonald’s has made no effort to negotiate in good faith with the NFLA Economic Team, there has been no counter offer or any willingness to come off of their “deferral” plan, a plan that does not cost them any of their finite resources. I would like to know what, if any, of their finite resources have been offered to the U.S. owner operator community to help survive this crisis and “think and act with a long-term mindset”.
The refusal of the company to look at the viability of each restaurant is more than disappointing. This approach puts operators’ other healthy restaurants at risk. Additionally, this is the ultimate inequity. The company is willing to allow an owner operator be in a cash flow negative situation on a restaurant while they continue to take their profit off top line sales. One of the most glaring examples of inequity was mentioned above. The economics in Walmart locations is completely out of sync. I’m not sure how McDonald’s justifies continuing to charge rent on Walmart locations when they have no expense, nothing invested and are not being charged rent by Walmart.
To address the issue of service fees, what service are owners receiving for this fee? The company supports the restaurants through: “services required by the franchise agreement and discretionary investments that will deliver profitable growth”. The franchise agreement responsibilities are: McDonald’s system and trademark, expertise on restaurant management, HU training, having a completed restaurant, business manuals, periodic consulting and PR/advertising specialists. Since this crisis started virtually none of the services have been required, the exception would probably be in the PR/advertising area. There is clearly no reinvestment happening, no training, no consulting, no development. FBP’s, OA’s, virtually the entire FO staff and MHQ are at home providing almost no support to the restaurants and yet service fees continue to accrue, with no willingness to discuss reducing them let alone abatement.
To wrap this up, part of what I believe is fueling some of the feelings in the owner operator community right now is the unwillingness of McDonald’s to help uphold our brand after years of inequity in profit splits. The NFLA Economics team did a great job of showing how the company has put all the risk and inflation on the owners’ side of the equation and has continued to take a larger piece of the economic pie year after year. Additionally, this crisis comes right towards the end of a hugely expensive modernization campaign that most operators felt forced into agreeing to. Few of us will forget Chris K’s comments at the beginning that you could sell if you didn’t want to go along with BBV2020. Now we are all saddled with debt to put in kiosks and modernize lobbies that no one can use and may never return to pre COVID19 levels.
At the end of Joe’s letter, he said that owner operators are losing faith in management, but this faith seem predicated on unlimited financial support. Nothing could be farther from the truth. The one deep desire I’ve consistently heard around the system is a desire on the owner operator side for a positive relationship with McDonald’s. But when McDonald’s steadfastly refuses to come to the aid of the owners in their largest market in the world, it is hard to believe that they have our best interest at heart. All I’ve ever heard owners ask for around finances is equity in the economics of this business. McDonald’s has clearly communicated through their actions that they care more about their shareholders than they do the owner operators, and that is a painful reality to deal with. The relationship between McDonald’s and the owner operators is not all about economics, but it cannot be void of that issue either.
Thanks for allowing me to vent my frustration and disappointment.